There was plenty to cheer in last Friday's employment report.The headline numbers showed payroll growth rebounded to apreliminary tally of 248,000 net new jobs in September, up from adisappointing tally the prior month. Heading into the fourthquarter, monthly average employment gains are the best we have seenin fifteen years. The other lingua franca measure of labor markethealth, the unemployment rate fell below 6.0 percent for the firsttime since mid-2008, putting it within range of the so-callednatural rate of unemployment. As of August, the CongressionalBudget Office estimates (emphasis on estimates) the current naturalrate of unemployment is 5.7 percent.

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Judging by the raft of commentary on Friday, commercial realestate market participants have wasted little time in linking thelatest job numbers to favorable expectations for propertyfundamentals. But even a cursory review of the data shows theimprovements are uneven along dimensions that matter for ourindustry. Among the most important qualifiers, wage growth remainslackluster. As compared to the prior month, average hourly earningsof private sector employees actually declined by one cent. Theyear-over-year trend, illustrated in the following chart andsourced from the Bureau of Labor Statistics, shows nominal earningsgrowth stuck at roughly 2.0 percent. That has been something of apuzzle of late for economists, since the lower unemployment rateand the improving balance of job openings to available workersshould be fomenting stronger wage gains.

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Rent and Earnings Growth
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Source: Bureau of Labor Statistics

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Sluggish wage growth implies a degree of slack in the labormarket that is not reflected in the lower unemployment rate, inisolation a notoriously incomplete measure of market conditions.Fed Chair Janet Yellen argued as much during her press conferencefollowing the mid-September FOMC meeting, when she attributed thelack of earnings growth to slack and again questioned the adequacyof the unemployment rate as a measure of underutilization. Thedecline in labor participation rate, which fell to its lowest levelin 36 years, is a confounding factor that continues to elicitdebate about structural and cyclical shfits in the labor market.Setting that aside for another post, apartment investors shouldtake note; for the average tenant, rent growth cannot race ahead ofearnings indefinitely. The historical link between a firminglabor market and wage gains is currently tenuous.

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Dr. Sam Chandan

An irreverent take on the macroeconomic environment. Dr Sam Chandan is President and Chief Economist of Chandan Economics and an adjunct professor in real estate and public policy at the Wharton School of the University of Pennsylvania.